Ismail Momoniat made the comments to journalists at a parliamentary briefing on new tax proposals on Tuesday, reports local news site Fin24.
“The implications of this repeal can be significant,” he said. “But the key issue is you can’t live in a world without taxation. If you live in a tax haven and you have connections here in South Africa, you must pay your share.”
In its presentation on Tuesday, the Treasury explained that, since March 2001 when the country moved to a residence-based tax system, South African tax residents who work outside of the country for more than 183 days (for at least 60 continuous days) were exempted from paying tax on that income.
This, however, was never intended to create situations where income is neither taxed in South Africa nor in the foreign jurisdiction, the Treasury said. It was intended to prevent double taxation.
Scrapping the exemption
The South African government announced in February 2017 that it will scrap the exemption and implement a new system to tax citizens living and working overseas in low or no tax jurisdictions.
Tax credits, however, will be applied for any foreign income taxes paid, meaning that those working in low tax jurisdiction would have a lower rate of tax to pay in South Africa than those in no income tax jurisdictions.
For example, if a person falls into South Africa’s 45% tax bracket and pays 25% tax in a foreign country, they would pay the 20% difference to the South Africa Revenue Service (Sars).
A consultation document is open for public comment until 18 August, with the changes scheduled to come into effect from March 2019.
Willing to listen
A public hearing will take place at Parliament on 29 August where the general public, tax practitioners and other stakeholders will be invited to give feedback.
Momoniat and Chris Axelson, director for personal income taxes at the National Treasury, assured journalists that the government will be open to comments and input from stakeholders about the proposals.
Who is affected?
According to the Treasury, a tax resident is defined as someone who has a home or a family in South Africa and intends to return to the country.
Individuals who were physically present in South Africa for 91 days during the current tax year, and for 91 days during each of the five previous years of assessment and more than 915 days in total over the past five years of assessment, are also considered as tax residents.
